Kabbage CCS 003 – Certified Case Study€“CCS–003–Kabbage.pdf• Kabbage business model •...

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Kabbage CCS 003 – Certified Case Study

May 2014



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Agenda

Section Component Description

1 Overview •  Kabbage - What is it? •  Why Kabbage is an ICG Certified Case Study

2 Context •  Kabbage business model •  Global market (peers and substitutes)

3 Detailed Description •  Kabbage value proposition

3 Relevant Media •  Media coverage and relevant quotes •  Case studies and detailed interviews

4 Marketing Collateral and Brochure ware

•  Marketing Campaign •  Collaterals •  Videos •  Social Media

5 Appendix •  Other ICG sources of insight

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HOW DOES IT WORK KEY INSIGHTS §  Kabbage is the #1 online

provider of working capital to small businesses in the US

§  Kabbage has built the world's fastest platform to provide capital to small businesses, claiming to fund companies within as little as 7 minutes

§  Kabbage leverages data generated by dozens of business operations to understand performance and deliver fast, flexible funding in real time

§  Kabbage can support any small business by analysing data sources such as their business checking account, Intuit QuickBooks, eBay, Amazon, UPS, PayPal, Authorize.Net, Stripe, and many others

Source: secondary research, ICG

Kabbage uses external information sources (Business Telematics) to redefine the information economics of the risks of short term funding to SMEs

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Traditional Core Banking Products & Services Extended Shelf Financial Products Emerging IT enabled Adjacent Services

Capital Access

Transaction Banking Payment Trade Service Risk Markets Wealth

Std. Loans •  Secured •  Unsecured -  Overdraft -  Line of Credit

Account •  Transaction •  Savings

Cash •  In/Out •  Money Order

Traditional •  Letter of Credit •  Import/Export •  Confirmations

Security & ID •  KYC •  ID / Sign-on •  Device (card)

Derivatives •  Futures •  Swaps •  Other

Foreign Exchange

Fixed term •  Term Deposit •  Bank paper,

Commercial Paper

Market Access •  Social Networking •  Collaboration &

Service clubs •  Foreign market

Introductions

Asset Finance •  Vehicles •  Specialised

Physical Cash •  Business

Deposits •  Lock Box

Debit Pmt •  Bill Present •  Bill Pay •  Direct Debit

Collections •  Invoice finance

Signatures & Authorities •  PKI / signatures

Guarantees •  Stand-by LoC •  Docu. Credit •  Surety (bonds)

Commodities Money Market funds

Education •  Closed •  MOOC

Invoice / Receivables finance

Consolidation •  Sweeping •  Pooling

Credit Pmt •  Credit card •  Corp card

Open Account •  Inventory •  Prepayment •  Collection

Visibility •  Transactions,

balances

•  General Insurance

Exchange traded instruments

Structured •  Money market •  Trust funds •  ETF’s

Staff Services •  On-boarding •  Payroll

Syndication Control & Advice •  Positive Pay •  Forecasting

Pre-paid •  Travel

Structured trade finance

Advice •  Capital Structuring

Life Insurance Carbon Employee Super Insight •  Benchmarking •  Analytics •  Consulting

Markets •  Equity advice •  Debt issuance

e-Currency Acquiring •  Terminal

Digital services e-Currency

Securities Trading

Software & Platform services •  Supply chain

orchestration •  Trade & Customs

documentation •  Market-places

Kabbage redefines extra working capital access via real time risk assessment of information and transaction flows from multiple external parties Product Class/ Type / Component Taxonomy

Note: Features and functions, not displayed on this hierarchy; Including: Price/ fees, Rate type, fee type, Collateral assigned, Purpose & Policy, Payment Structure (F, amount), Statement (form, cycle), involved parties, Direct Debit, Payment exceptions (retry, Extra, Holiday), Portability, Top-up, Re-draw, Progressive draw, Renewal, SmartPay

Source: Business Banking Product Innovation KAR (Available for purchase at the ICG Store)

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Capital Access Innovation & Trends

Incremental Disruptive

Supply chain finance shifts ‘risk’ of purchaser of supplier financial failure upstream to Buyer via REVERSE FACTORING. Borrowing a page from this innovation, AMAZON, GOOGLE, & PAYPAL offering financing to businesses based on the transaction flows they manage through proprietary marketplace platforms

… Combination of factoring and receivables financing; This enables small and medium sized companies to liberate cash from their supply chain more quickly

3 most visible’ product/service innovations occurring in Business Lending space are: •  Product Bundling •  Competing on Speed •  Customer centric underwriting limits

Quarterspot & Kabbage… provide online loans for small businesses

via Quickbooks Financing is enabling multiple lending partners to utilise data from Quicken book-keeping products to utilise data in their lending application processes. These include: •  Application aggregators, •  Cashflow finance & •  Online- traditional lending players

Ezbob has secured investment from private investors and funds to take packaged loans & provide servicing

Paypal & Amazon are extending traditional credit to small business

Klarna offers Online businesses ability to offer Pay on Delivery to clients via outsourced financing

Finance-it; taking point of sale finance into the cloud for traditional retailers; Enabling simplified and real-time underwriting

Mckinsey description of Underwriting triage – More automation for simple risks, more ‘expertise’ & ‘’experience’ applied to complex

Source: ICG

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Kabbage typifies the application of business telematics to the SME segment The 2020 Digital SME and its CEO will demand a digitally transformed service offering from its bank

DIGITAL BUSINESS CONTEXT 2020 DIGITAL PERSONAL CONTEXT 2020

Source: ICG Source: PWC, curated by ICG

Virtual Cloud platforms

Digital Authentication

Algorithmic people, time and place coordination

Multiple currency and real time bartering and clearance

Social Internal and external

business social media platform

Physical Delivery and security drones

Nano sensors

Self healing systems

Ubiquitous robotics

Remoteless manufacturing (3D printing)

Adaptive business coaching •  identification of relevant and

curated best practices and improvement levers

•  dynamic global advisory board

Internet of things •  real time performance

monitoring of physical infrastructure

•  real time geo-location inventory monitoring

Business ecosystem •  fail safe redundancy of

business suppliers •  electronic Integration into

customer business models

Applied business acumen (IA) •  self-correcting and optimising

operating processes •  physical and virtual resource

optimisation •  heuristic guided semi-automated

problem recovery

Business telematics •  real time big data monitoring of

actual business performance •  signalling and contingent

decision making to relevant business partners (Suppliers, Banks, Insurers)

•  syncs with all operating systems

Smart glasses •  capture image, video and audio •  scans coded markers •  enables multimedia chat •  updates social networks •  syncs with other mobile devices Wellness monitor

•  processes exercise data (steps, reps etc.)

•  analyses nutrition/ calories of grocery and restaurant foods

•  analyses perspiration for chemical markers

•  syncs with wearable exercise shoes/clothes

•  syncs with personal health portal

Mobile device •  primary mobile information hub •  wallet and credential hub •  application management hub • media and communications input hub •  interface between user and core

service portfolio

Networked wearable devices •  records physical activity for

upload to wellness monitor •  records physical activity

to a time log •  analyses physical performance

against goals •  displays progress/regress

against goals •  syncs with opt-in social networks

Health monitor •  captures resting/active

pulse, BP, temperature •  analyses cholesterol,

insulin and similar markers

•  syncs with wellness monitor for building health profile

•  communicates with healthcare provider

•  offers suggestions for health improvement

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Global Market – peers and substitutes Kabbage is the world’s leading user of business telematics for working capital lending (an ecosystem play); it competes with digitised SME loan broking services like Biz2credit

§  Widely recognized as the #1 online credit resource for start-up and expansion loans, lines of credit, equipment loans, working capital and other funding options

§  Since it was founded in 2007 has arranged more than $1 billion in small business funding for thousands of companies throughout the U.S

§  Using the latest technology the platform matches borrowers to financial institutions based on each company's unique profile -- completed in less than four minutes -- in a safe, efficient, price-transparent environment

§  The network consists of 1.6 million users, 1,200+ lenders, credit rating agencies such as D&B and Equifax, and small business service providers including CPAs and lawyers

§  Opposite to Kabbage, Biz2Credit do not lend money itself, but simply provide a platform to lodge a single application that will be examined by different lenders

HOW DOES IT WORK KEY INSIGHTS


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Agenda









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Kabbage relies on a large number of data factors to approve lending to SME

KEY POINTS

•  Online financing corporation based in Atlanta, Georgia, with offices in S. Francisco

•  Funds business that find it difficult to get financing from traditional banks

•  Founded in 2009 by Rob Frohwein, Marc Gorlin and Kathryn Petralia

•  Started lending money in 2011 •  Current valuations reach as high as $2.3B,

possible IPO in mid 2014 •  Launched in the UK in 2013 •  Current plans to expand to Canada in the next

18 months •  No plan to come to Australia yet •  Uses social data in its underwriting decisions •  Poached Senior executives from successful

tech companies (Travelocity, etc) •  Won several awards as one of the most

innovative companies in the US •  Revenues not disclosed

How does it work •  Uses data from business checking accounts, accounting software, payment

processors, UPS shipping data, other online tools including large ecommerce sites like eBay, Amazon, Etsy, Shopify, and the Yahoo! Store to reach small businesses looking for capital

•  Underwriting decisions include social media metrics: e.g. how many likes a business has, how often it posts information, how many times people comment on the posts

§  Uses number of data factors, including business volume, time in business, transaction volume, social media activity, and the seller’s credit score

§  Checks traffic patterns on Web sites with Google Analytics

§  Deducts its payments automatically through PayPal or a business checking account

§  Kabbage developed “Social Klimbing” as a way to generate a Kabbage “Skore” for its customers, which is utilized like a social media credit score

§  Partnered with UPS to have visibility into the entire volume of shipping business their customers conduct

§  Entered into a partnership with Intuit QuickBooks in Spring 2013, which enables QuickBooks users to get quick access to Kabbage Cash and Kabbage to reach the millions of QuickBooks users

BUSINESS MODEL

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Kabbage has a high quality customer base: around 80% are repeat customers, with less than a 10% default rate

KEY POINTS

•  80% repeat customers •  Less than 10% default rate •  Tens of thousands of customers •  targets merchants using websites such as

Ebay and Amazon •  Strong correlation between the level of

social activity and a lower delinquency rate in those customer groups

•  The Default rate on Kabbage loans has been less than 10% and the average Kabbage customer grows by more than 70% in the six months after their first advance

•  Specialised in providing cash advances to small and medium-size online retailers •  Its typical customer is an online business with annual revenue of less than $1 million •  Funds capital between $500 to $100,000 •  The average Kabbage line of credit — $8,000 to $10,000 — is typically held for 4

months •  The average interest rate for each of the first 2 months is 5% and then an additional

1 percent for each of the next two months •  They have lent $140 millions since inception •  In 2012, its largest cash advance was $39,000

•  In 2013 Kabbage is cash advancing $75,000 lines of credit. •  Kabbage's customers typically utilize advances for inventory purchases, upgrading

systems, and marketing

CUSTOMERS PROFILE

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Source: Kabbage.com; Business Week - How Merchant Cash Advances Work - January 9, 2009

Kabbage has a clear competitive advantage over other lenders

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Quotes from the Press (1/2)

QUOTES

“It’s a line of credit,” said, founder and chief executive of Kabbage. “We call them advances, versus loans, and we might give you access to $10,000, and you can take down $100 today, nothing, or in $100 increments all the way up to the full amount.”

Rob Frohwein, CEO, Kabbbage New York Times, 27th Sept 2013

“We liked the fact that they looked at our revenue and not just our time in business”

“At first, we were hesitant, but they were more aggressive in

funding capabilities than other companies were. We paid 14% to keep the money only four months. We understand they have to earn money too.”

Joe Rotbard, CEO, Med724,

New York Times, 27th Sept 2013

“Many of our customers use Kabbage funds to buy inventory at a great rate and quickly resell it for a profit, so this is a major driver in the revenue growth”

Rob Frohwein, CEO, Kabbbage New York Times, 27th Sept 2013

Source: secondary research

“We probably know more about any given business than any other company has known about a small business, ever. We look at transactional data, QuickBooks entries, UPS shipping history, payment processing, and bank account activity to get a much better picture than banks get from just financial statements”

Kathryn Petralia, Cofounder, Kabbage Wired, 19th Sept 2013

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Quotes from the Press (2/2)

QUOTES

“Factoring receivables is one of the oldest models in trade financing. They have taken an old model and added an online twist”

Paul Kedrosky, Kauffman Foundation Time, 13th July 2012

“There is a clear void in the market as traditional financing sources remain reluctant to lend,”

Tom Affolter, Principal, Victory park Bloomberg, 3rd Apr 2013

“Small businesses can’t afford CRM software but realize that they can use social media to take care of their customers and stay engaged,”

Marc Gorlin, Cofounder, Kabbage Time, 13th July 2012


““It’s really hard to find money today, we have some situations where we’re just a little guy fighting with big-box retailers, and I was able to buy at distributor levels with Kabbage money, to bring down costs enough to lower my prices, sell product and still compensate for Kabbage interest.”

Mitch Rezman, Owner, Windy City Parrots New York Times, 27th Sept 2013

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Kabbage SME customer example: Windy City Parrott (WCP)

KEY POINTS

•  Owned by Mr Rezman and his wife •  Specialised in supplies for exotic birds •  Based in Chicago •  Trading for 30 years •  No employees •  Launched an e-commerce website in 2002 •  27,000 Facebook fans, with post up to 6

times a day •  They post questions about birds, share

action shots of birds using their products, and post notices when birds are lost and found

•  Projected revenue for 2013 of $470,000

How Kabbage funds a small SME with unconventional features •  Mr. Rezman applied for a $15,000 loan from one of the big banks. He was turned down

with a form letter that said he did not meet requirements. A month later he applied at the same bank for a loan with a Small Business Administration guarantee and was turned down again, he said.

•  Applied for a $15,000 microloan from a program run by the state of Illinois. After writing a 16-page business plan, participating in six face-to-face interviews and providing supporting documentation, he was rejected because the organization determined his margins were too small.

•  Then, after reading about Kabbage in a business newsletter, he decided to give it a try. “It was literally at 3 in the morning,” he said. “I gave them our information online, and there was $4,600 in my PayPal account in seven minutes.”

•  One month later, Mr. Rezman successfully paid back his initial line of credit plus 11 percent — a charge of $506 for a one-month loan — and Kabbage raised his limit to $24,400. “Because it revolves, I never worry about the limit,” he said. “I borrow what I need and pay it back in 20 days on average.”

•  Taken out approximately 12 short-term loans, including a $3,000 cash advance to stock up on merchandise for Labor Day sale, paid back with 5% interest — a cheaper rate than previously because the money are paid back within 20 days

•  Borrowed and paid back nearly $40,000 in 2013 •  Kabbage lent them money because they had great metrics according to Kabbage

standards (social media, etc) but not according to traditional lenders

KABBAGE BUSINESS PROPOSITION TO WCP

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Case studies - video Click to watch

Source: Kabbage.com

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Website

Source: Kabbage.com

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Website

Source: company website Source: Kabbage.com

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Website

Source: Kabbage.com

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Website

Source: Kabbage.com

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Website

Source: Kabbage.com

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Website


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Website


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Website

Source: Kabbage.com

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Video: how Kabbage works?

KABBAGE VIDEO Click to watch

Source: Kabbage.com

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Mobile Application

Source: Kabbage.com

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